Question

Four years ago my daughter was born. On that day I started making annual deposits of $5000 into an account that earns 10% a year. On her 9th birthday I will increase the annual deposits to $8000. I intent my final deposit to be on her 18th birthday, How much will be in her account on her 21st birthday (within $50 of the solution below)? 404,001.85 404,101.85 404,201.85 404.301.85

Answer 1

Answer: $404,101.85

Explanation:

Future Value = Present Value of Payment * ( 1 + Rate of interest) ^ Period of Holding

= Payment * (1 + R) ^ N

Payment N= period 0 $5,000 1 $5,000 2 $5,000 3 $5,000 4 $5,000 5 $5,000 6 $5,000 7 $5,000 8 $5,000 9 $8,000 10 $8,000 11 $8,000 12 $8,000 13 $8,000 14 $8,000 15 $8,000 16 $8,000 17 $8,000 18 $8,000 R= rate of inter Future Value 18 10% $27,800 17 10% $25,272 16 10% $22,975 15 10% $20,886 14 10% $18,987 13 10% $17,261 12 10% $15,692 11 10% $14,266 10 10% $12,969 9 10% $18,864 8 10% $17,149 7 10% $15,590 6 10% $14,172 5 10% $12,884 4 10% $11,713 3 10% $10,648 2 10% $9,680 1 10% $8,800 0 10% $8,000 TOTAL $303,608

So on her 18th birthday, the account balance would be $303,608

So the balance on 21st birthday would earn 3 more years interest.

Calculating,

= $303,608 * (1.1^3)

= $404102

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